The world is in great danger! The global crisis is at the door
As of the fourth quarter of last year, total global debt reached an historic record level of $ 277 trillion, reaching 365 percent of global GDP. Structural risks that may arise in any part of the global economic system, which resembles a chain connected by invisible links to each other, can have serious consequences that threaten the entire system.
The global debt level has increased by approximately 23 percent, with 52 trillion dollars since 2012, which is thought to have diminished the effects of the 2007-2009 financial crisis, raising concerns about the repayment of existing debt. Finally, the great burden of economic and financial steps taken after the pandemic strengthens pessimistic possibilities.
World Bank President Malpass stated that both domestic and foreign debt burdens, which were at record levels before the Kovid outbreak, have become much heavier due to the devastating contraction in developing economies. Malpass says a comprehensive set of policy interventions is needed to tackle what the World Bank calls the "fourth debt wave". Similar debt waves in the recent past resulted in the Latin American debt crisis of the 1980s and the Asian financial crisis of the 1990s and the European debt crisis of 2007-2009.
AFTER THE PANDEMY
Since the beginning of the epidemic, governments have focused on expansionary monetary and fiscal policies to compensate for the sharp declines in economic activity associated with broad-based shutdowns and social distancing measures. Whereas the increase in lending by multifunctional international financial institutions such as the International Monetary Fund (IMF) and the World Bank helped to finance emergency health care responses in developing economies, wealthier countries had a distinct advantage in their ability to respond to the crisis.
As pointed out in the IMF's policy notes published in December 2020, unlike the 2007-2009 crisis, banks in many economies of the world supported macroeconomic incentives with various temporary loan operations. These measures provided some breathing opportunity for households experiencing loss of employment and decline in income, as well as businesses seeking to mitigate the impacts from mass shutdowns and general disruptions in normal activity. However, even if the effects of the pandemic disappear rapidly in the upcoming period, it remains uncertain to what extent the high debt stocks awaiting both private sector financial institutions and governments can be met with available resources.
PROBLEM LOANS ON THE CLIMB
There are opinions that financial institutions around the world will continue to face a significant increase in bad loans in the upcoming period. Among the masses that the epidemic weakened economically in the first place, it is seen that low-income households and small firms with less assets and reserves that can protect themselves against bankruptcy. SME business in many developing countries� 9%